Do you approach property management with an investor mindset? In this episode, Andrew Smallwood is joined by RentSmart CEO Justin Anderson to discuss what an investor mindset means, and how it can help you create a Triple Win with investors and residents. Justin lends his expertise in single- and multi-family rentals and leans on his experience as an investor and property manager. Listen now to learn about his unique approach to resident onboarding and how it saves countless hours for his team further down the road.
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Season 4 Episode 22 features Justin Anderson
The Triple Win Property Management Podcast is produced and distributed by Second Nature.
Andrew Smallwood
Hello, professional property managers! Andrew Smallwood here. And I'm joined by Justin from RentSmart. It was great to meet you at the NARPM Southern States event. And thanks for joining us today on the Triple Win podcast.
Justin Anderson
Thanks for having me, Andrew. I enjoy it.
Andrew Smallwood
Absolutely. So, Justin, some folks may know you, but some folks may just be meeting you for the first time. And I think you got kind of an interesting background and story of how you got to where you are. Would you mind kind of just sharing what people should know about you before we get started?
Justin Anderson
Sure. I got started in this game in ‘98. I bought my first investment property. I read a book that probably most, I hope most of the people in this industry have read. If they haven't, they need to. It's called Rich Dad, Poor Dad. In that book, Robert Kiyosaki, he had so many messages. But at that time, at 25 years old, the only message I heard was, Justin, go buy a house, let somebody pay it off for you. And so I did. I got started in this game as an investor, not as a property manager.
And I bought my first little two bedroom, one bath house on the south side of town in Augusta, where I live, for $27,000 and got it fixed up and rented it out. And as time went on, I started to grow. By 2003, I bought my first 100 unit apartment complex. By 2005, I was looking outside of Augusta. January ‘06, I closed my first 250 unit property in Oklahoma City. I own nine, we were running and owning and operating about 800 doors, and it was a good experience. But along that path, I became something of a student of market cycles, trying to understand what was happening in the market to judge my investment decisions on. And I started looking around at the horizon, and in ‘09, the market had collapsed.
I don't know how long you've been in this realm, but I had the misfortune of living through ‘07-’08 with a lot of assets, and the one takeaway from that experience was making sure that I was always looking to the future about where we were headed, because when that market melted down, Andrew, it was happening and nobody, nobody that I knew was aware of it until after it was over.
I mean, like as the fallout was happening, we became aware. So I started really looking into the future with markets and what was happening. And by ‘09, I was convinced that there was going to be a major movement of building in the multifamily sector over the coming decade, because it had been largely under built since the ‘80s and so as I was looking at that, that horizon and the product that I owned. I was concerned that we were going to run into some vacancy problems as that as that inventory aged and new product came on board, that they would take tenants pulling from my product into slightly newer product.
So we started selling and we exited out of the multifamily game between 2013 and 2016. We sold all of our apartment portfolio, went back into single family housing, and at that time I had a handful of investors that were in the apartment game with me that wanted to keep investing, and I was moving back into single family.
I thought that was the play at that moment. For a small guy like me, that we could really maximize our returns. So we went back into single family housing, and I had a handful of investors that wanted to come with me, but I wasn't going to partner with them on house. They needed to buy their own, and I would manage them.
And so I had been licensed at that point in Oklahoma and Georgia. And so we started managing in Georgia, where I lived. And, over the last ten years, we've grown to where we're running almost 250 doors now. So having fun, it's all been warm leads and, you know, just word of mouth, folks that I know, and going to places like this and networking and getting to know other people and building relationships.
Andrew Smallwood
Yeah, thanks for walking through that. And I think, yeah, I also want to double click on something you were talking about as you're introducing yourself there, of, you know, the market cycles and what's happening in the macro, what's been happening, you know, the kind of ground truth of where we are today as you see it. And you know, what you're paying attention to and what you're kind of looking at in the days ahead.
Justin Anderson
You know, it's interesting, again, I come at this from an investor mindset. So even though I'm a property manager and I manage assets, almost everything we talk about is going to come from that investor lens. And for me, we're coming out of the hardest period. You know, I know that this past period is when everybody's making money.
You're watching real estate agents out there killing it and making huge commissions. And there have been million dollar commission years. And I'm over there, you know, painting my shutters and making sure that my air conditioners are working and, you know, that sort of thing. And what I love about the property management business is that it's stable, right?
That we don't have these massive fluctuations in our income streams other than when, if we're doing a good job, when we are bringing on new assets into the portfolio, our income continues to steadily increase. But for the last 4 or 5 years, it has not been a solid buying market for my client base, unless they're coming out of a market like California that is massively appreciated, and they have huge equity, and the cash flow is marginal relative to the equity that they've got in their assets. And there's, I mean, there's a number of markets. I just happened to pick on California, but it's a number of markets. And they're coming out with a 1031 exchange where they sold that asset.
And they're moving that portfolio to another market. And in our case it's been for my personal brokerage. It's been Augusta, Georgia. And the returns are so much better. They can buy three houses for the price of one. And the cash flow is nearly triple what it was on their single investment that they had back there. And so we've seen some of that movement over the last 4 or 5 years, but it's been minimal.
I mean, it's really just been a little bit as people have been selling assets and trading them for tax advantages. But we're now entering a space in the market where the buying window is opening. And it's an interesting dynamic that happens for us and the business we're in. It's when everybody else is making money in the upmarket property managers are generally, you know, in a slower growth period because property prices are too high, investors aren't trading.
But when the market goes bad and nobody wants real estate and that real estate becomes trash, well, that's when my investors make the most amount of money, and that's when they come out of the woodwork. And I think we're just barely entering that phase of the market. We've come out of this peak where values have been. We can talk about pricing and value, but pricing has been high and we're seeing pricing soften just a little bit.
And now there's some interest where sellers are becoming a little bit more motivated. We're able to put together deals that make a little bit more sense for investors. And so that buying window is starting to open. And the beautiful part about it for me is this is not like we're driving a Ferrari. It's not like we're going to go walk out the hotel here, jump in a Ferrari and spin around in circles around a dime.
We're driving an aircraft carrier here. And, you know, if we decide we want to make a turn, it might be two miles before we can actually execute that turn. So we have a very long runway in this business and this buying when they're just opening, I think we've got a probably 24 to 36 month horizon before what I feel the market really is going to bottom.
And of course, that's market specific, right? Every single city has different dynamics that are impacting this. But in general, broad sweeping terms, I think we've got some runway. You know, a lot of what I hear, in the areas we had incredible rent growth for a few years right. During the Covid times, a lot of people are saying that's really slowed down, in their market is an experience they're having in places like Austin where prices are even decreasing appreciably.
In what markets is that— not what market, but what segment of the market is that happening? Now in single family rentals, we're seeing interest and multifamily frankly in Austin. We're definitely seeing it in the multifamily. And part of that plays into you and I just before we started this, we're talking a little bit about why I got out of the apartment sector.
But, you know, that overbuilding that happened there, we're seeing rents drop dramatically in markets where they've overbuilt. And so they're offering these concessions that some people that have been in housing are starting to migrate back over to apartment rentals. So they don't have to take care of yards, but also because the rents are becoming more affordable.
But I also think that that is a little blip in the single family business.
Andrew Smallwood
Yeah. I just saw in Nashville, I was just curious in looking at pricing in multifamily. And it's common to see during peak leasing season a month free, you know, occasionally a month and a half or two months free. In some cases, it's a new building lease up.
And for the first time, I saw three months free. For the first time, I saw two months, plus free parking for a year. The first time I even saw one that offered four months free. I'm like, it seems like maybe we should be re underwriting the prices as opposed to that, that kind of concession. Yeah. What's your view on kind of like what's going on there and why that's happening?
Justin Anderson
I think it's a couple of things. I think it's just an overbuilding in the multifamily sector in general, and so we're seeing some vacancy there. I mean, the big money was chasing yield and they came in and built these. The developers were building them out. They were doing whatever they needed to do to lease up and make occupancy look right so they can get the financials to then...
Developers don't hold these things. They sell them off. And to the, you know, what you might call the secondary market. The owners that will then hold them, whether it's the rates or the hedge funds or the big money that's holding them. In some cases, small investors that own one off here, one off there. I think the advantage is in the single family market, there's huge opportunities.
And I think it's that way for a couple of reasons. Number one, it depends on the specific type of asset class you're going to go into right now. And I think that, you know, as you go around the investment circuits where they're teaching investment classes at the beginning, investors, they tend to push towards that lower end product.
What's so refreshing about being here in RPI is, it seems that most of the managers are not leaning into that. They're definitely at a slightly higher tier of product that they're willing to manage and want to manage. I think that's also the product that the folks here, if they're not already, should be investing in and get their clients to be investing in that slightly higher product that's in better school districts, that has a more sustainable occupancy rate.
And the most beautiful part about it, in my opinion, in the single family business versus multifamily in the multifamily sector, if I'm in a city that has a 8% vacancy rate, if I'm best in class, I might be running a 6% vacancy rate. I'm not talking about the way these site managers take out the properties or their doors that are, you know, in rehab that need full maintenance, that there's, “oh I'm running 2% vacancy.”
No, you're not. Let's include all that stuff. At best in class you might be running 1 or 2 points different, but you also run the risk of, if you're not best in class, you might not be at eight, you might be at 12% or 14% vacancy. And if you don't have the investors or the pockets to weather concessions like that, it might get worse for you during these down times.
And single family residential, it's so much easier to be best in class because that 10% vacancy rate, if that's what it turns into, if we get bad in the single family market, which I don't believe we will, by the way, but if you take care of your assets properly and you get your owners or the properties you that you own personally, if they are put together properly, they're neat, clean and green.
They are there. Everything is in order. And I'm not talking about, you know, Italian marble floors or anything. I just mean that they're perfectly in order and clean and everything's put together. Your house will get rented and taken off the market, and the hobby landlord that is out there running his business, that's the guy that's going to experience the vacancy loss.
And so I love the single family market for that reason. Because if you have a well-run business, you're somewhat insulated even from some of these market shifts that we're going to be happening, even if we see a slight increase in vacancy.
Andrew Smallwood
Yeah. So I want to ask one more question about single family particularly, because this is something I'm trying to get smarter about, and admittedly, I am just, and just learning more about.
But, you know, consistently for years, what we've heard people say is, okay, you just talked about oversupply and multifamily and consistently what we've heard in a lot of cases is undersupply in single family compared to when you look at the demographics and, you know, household formation and just what is going to drive demand in single family.
And some will argue, hey, it's this many million versus this many million. But people generally agree directionally, yeah, that we're undersupplied in single family. And similarly we don't see two months, three, three months free concessions in single family. That's not the norm. That said, a lot of property owners are experiencing now longer days on market.
Justin Anderson
For sure.
Andrew Smallwood
A lot of them are experiencing a lower quantity of applications coming through. And that's certainly a concerning sign to a lot of people, who feel like that's the lifeblood of their, you know, the demand, the business. So can you kind of talk through your perspective on here? Are those assumptions true? You know, what's the world that we're in where both of those things are true at the same time?
How should we be thinking about the supply and demand dynamics in the single family space, generally speaking?
Justin Anderson
That's a great question. I think that we're certainly seeing that in the portfolio we run also, and I think it has to do right now with particularly the type of tenant that we are managing in, not the lowest echelon of product.
It is, you know, definitely a middle, upper middle class type of product. And I think that that person is feeling the economy is really a lot worse than what the government wants us to believe it is. And they're being responsible. They're not moving. We're not seeing turnover out of the best of our tenants. Actually, what we're seeing is a couple of things happen, and it can be validated both through the applications we're receiving and what we're seeing on the move outs and on the applications we're receiving.
We are seeing a much higher influx of unqualified people that are just rolling the dice, seeing if they can move into something because there's excess vacancy from normal market types, because we have seen a slight uptick. I think some of that uptick comes from new investors entering the market. There's a little more inventory.
Some of it is an owner that got relocated and they have to move to a different city. But they've got this 2% interest rate on the house. So they don't want to unload it, they want to keep it. They want to hold on to that. So they're going to turn it into a rental property. So we've seen a little uptick in that while simultaneously we're seeing homebuying decrease a little bit. Interest rates are high. So people are sitting back, the most responsible of people, whether the tenants or owners, are sitting back and kind of waiting to see how this is going to shake out over the next three months, six months.
I'm not a political guy. I think some of that does tie to the election. They want to see, what does this mean? What are the rules? You know, we're about to have this, maybe a rule shift here depending on which party stays in power. And, you know, I think that that is causing the most responsible people to sit back and wait.
And so they're not moving. That gets validated. That idea gets validated. When we look at our move outs, we are seeing a higher turn cost than we have recently. And it's not because all of the sudden people just decided to not take care of their houses as well. I think it's because it is our lower– and the people that we qualify, but they might be, not what I would call our A tenants, but maybe what I might call our B tenants, and the B tenant that doesn't necessarily clean the house as frequently.
And if there's a mark on the wall, they're not that concerned about when they walk down the hallway or something bangs into the wall. And as those people are moving that are also in line with not being the most responsible of our tenants, that is causing more of the units that are turning to need more rehab. So what we're seeing is in line with what you're saying.
I think that that starts to shift, though, and I think it starts to shift over time as interest rates come down a little bit. I don't think we're going to see days of 3% anytime soon again, maybe ever in our lifetimes. You know, I think a more normal interest rate is probably healthier for the market anyway, quite frankly.
But I think that as we see that, that shifting, there is an incredible undersupply of properties and, you know, we can talk about what that number looks like. I did that talk at Southern States, and I pulled the stats on it. I showed what homebuilding trends were and how many pieces of inventory were actually built to meet normal demand.
And that came right from the Federal Reserve statistics from the Saint Louis Fed. And the number was somewhere around 400,000 units per year for the last ten years. And so, you know, right now we do have this undersupply, but we have this undersupply that we're seeing a little uptick in vacancy as people are doubling up.
They're not sure what's going on in the economy. So we're seeing kids move back in with their parents. We're seeing roommates double up, and where before they were going to have their own apartment, now they're going to share a two bedroom unit, and we're seeing a little bit of that happening until they have confidence that our economy is actually not cratering below them as well.
So there's some demand destruction there, like we saw in ‘09 people living with parents, etc. you're seeing that happen as well. I don't think it's as bad as them at all. Not even close. But I think we're feeling a little bit of that right now as the responsible folks are taking a step back to just see.
Andrew Smallwood
Okay. So I think we've talked a lot about the market. I do want to get to a couple other things. But one quick thing is just state of the consumer. I think you were talking a lot there of the psychology. I mean, I've seen things like we're at record credit card debt. You know, I'm starting to see things in auto loan delinquency that people are holding on to their mortgage, to that payment.
If it's at a 2.7 right there, they really want to make that payment and keep that mortgage, and rents and delinquencies. I'm not hearing a whole lot. Are you guys seeing anything in the delinquency or do you anticipate anything happening in the delinquency? It seems like jobs have been okay, relatively strong.
Justin Anderson
So, you know, I cut my teeth in the low income housing business and I'm not really in that market sector any longer.
Most of what we run is sort of middle and upper middle income product. And for us, we haven't really seen any massive increase in delinquency. My friends that I know and colleagues that I know that are running lower income, they've seen a little uptick in it. We live in Augusta. There was just a massive hurricane that came through there and caused a lot of devastation.
So, I mean, there's a situational incident that caused a little bit of delinquency this month, I think, for some portfolio managers. But I don't know that that is. I do know it is certainly not an indication of the broader market. It was a one time event. But I think that, you know, I think that if property managers are pretty solid and consistent in their screening methodology, and having the patience to talk to their owners about waiting for that right tenant, we are seeing that time increase that we started to talk about a little bit ago. So, you know, we've increased where it's probably nearing 30 to 45 days to lease a house to the right qualified tenant and talking through your owners. I think communication is key right now.
You've got to be communicating with your owners and helping them understand that you do have their best interest in mind by not just putting the first breathing person into that house, because we're seeing such a disproportionate number of unqualified people applying for product these days. And so it's not that the applications aren't coming through, it's just the quality of those applications has reduced.
And in order to preserve your asset, which is what you hired me to do, and you hired me to protect your asset and to collect your rent and and to do that, you know, I need you to have a little bit of understanding and believe that I'm taking care of things for years. We have to delay this process a little bit.
And most of my owners have no problem with that, you know, I mean, the owner that has the problem with that is the guy that bought his house a year ago, has a 7% mortgage, decided not to sell it or couldn't sell it. So they're renting it out, and now they've got two house payments for those 45 days. And that individual’s in a panic. And it's hard. It's hard helping that guy.
Andrew Smallwood
So let's talk a little bit more about this investor mindset. So that's how you came up. You know, even just hearing how you're talking about things, it would be easy to say, hey, we could rent this property a couple weeks faster, there's hundreds of dollars or even $1,000 vacancy costs we can get rid of.
Am I doing the right thing? But if you're sacrificing, you know, the quality of qualification, right? Of your resident, that can come back to bite your leader. You mentioned, hey, the turn costs are getting higher. Not just because they're staying vacant longer, but inflation and costs have gone up. And absolutely people are feeling that.
And so, you know, what I appreciate is as opposed to having a kind of simple interest at a point in time, how we're thinking about this decision, you're thinking about things holistically and trying to say, what's really going to be in the best interest here. Can you talk about some of the decisions you feel like you see that are out there, that you feel like, man, people are missing a piece of this? Or if they had this perspective, they might be making a different decision from that point of view.
Justin Anderson
I probably need to look through the lens of like my staff, the folks that work for me. And I really encourage even all of the people that work on my staff, whether it's my leasing agents or my compliance folks or my resident relationship people, I want them all to own properties, and I give them incentives and commissions and helping offset the cost of acquisition so that they have a solid understanding of investing also, so that they also can see through the lens, because the it's impossible for me to take that investor lens off. I just live in that world.
But I watch some of them that will come in and a tenant will be very upset about something, sometimes very understandably, that, hey, this is a situation that's going on and I need it fixed right now. And it's a three alarm fire, and the resident relationship manager is coming in and just like putting immense pressure on the maintenance guy, “I don't care who you have to call. Get him there this afternoon.” And you know, sometimes we have to really gauge what really is an emergency. Gauge, you know, not just looking at helping the tenant out, but also making sure that we're protecting that owner and thinking about it from the lens of their financial repercussions from the decisions we're making because they're trusting us with that.
And so, you know, the thing that I have to help my folks understand most commonly is it's mostly just about communication. Normally, that three alarm fire is because that person has felt like they weren't communicated to. That they have been ignored or that they're just for too long a period of time in their life in general that people just don't listen to what they're saying, and so their immediate go to is just to call up enraged.
Because that has been the winning strategy for them and just helping, like my folks, my team, understand a little bit about just, for lack of a better word, crisis management or conflict resolution, or whatever you want to label it where they can come in and and help diffuse the situation and help that person feel heard so that we can de-escalate the situation and then make reasonable judgments about what the best way to solve the problem is.
Now, of course, it's 105 degrees out and the air conditioner’s out. Yeah, that is an emergency. But I don't have the ability to wave a magic wand and just have somebody show up there in the next seven minutes. And communicating that to the resident is critical. And having those open lines of communication, helping them understand that we do care.
We are here to solve the problem, but understand the restraints that we have. Right? But if it's 78 degrees out in the air conditioner won't cool their house to 76. That might not be a tomorrow fix, depending on what we're dealing with, right?
Andrew Smallwood
Yeah. Moving to the residence side for a minute and kind of doubling down there, I've heard so many property managers say I'm in the experience business, or I'm in the expectations business. And I think about that example of emergency HVAC as being one where, hey, if a resident was owning this home and this was their problem, how fast would they be able to find a vendor who could get out there during peak season?
But obviously that's not the expectation that a lot of people hold, right? Oh, it's going to take a few days or a couple days or whatever it might be to get this handled. Catching people in these emotional situations, what does that actually look like of diffusing that, but also setting an expectation that you can beat, that you can that you can do at least 1% better than? And when you know people have the wrong expectations. And I'm sure that happens on the investor side as well.
Justin Anderson
I think what I watch all too often and, I don't necessarily know most of the professional managers don't have this, at least when I see the folks that I know and work with, they don't have this issue. It's more the investor that owns their own property. They tend to work on a reactionary basis as opposed to being proactive in how they're approaching things. And so a lot of that just has to do, once again, with just communication and setting the expectations up front, talking to the residents, which is why, for us in our business, we don't just have a property manager.
There's somebody that runs the asset side in our business, but there's somebody that runs the resident side that is exclusively almost like the tenant advocate, if they will. And they are responsible for making sure that they have a high level of communication with that tenant. We're not friends with them, but we are friendly and we are there to solve their problems and work with them through that.
And part of that just comes, for us, right at the very beginning. When we do that lease signing, we have an hour-long orientation that we're talking about those expectations and we're talking about what that looks like, you know, for emergencies, and what constitutes an emergency. And how we navigate that and how we're here to help you.
But also set the expectation that, you know, you should call us when you see this stuff starting to happen so we can be aware and talk through it. Don't wait until 5:15 on Friday afternoon. And when you've been putting it off for two days to talk to us about the problem.
Andrew Smallwood
I want to ask, because this is something I don't hear a lot of people do. This one hour orientation around signing a lease. It’s huge. I mean, somebody might be signing a $20, $30, $40,000 annual contract, right? A third of their income represented in that contract. And, you know, what I hear from property managers is 98% of people don't read it. And even if they try to read it, they don't understand it.
And so hearing that you guys invest and take the time, it's hard to do that. Can you tell me a little bit more about some bullet points in that one hour orientation? What are the things that you guys have learned?
Hey, this is a ticking time bomb. It's going to explode on us later. How do we take some of these landmines off the field upfront? What have you been able to effectively communicate there versus what's been more challenging to kind of cover upfront?
Justin Anderson
You know, it's interesting. When we were smaller and I used to be involved with all the lease signings, I actually started the process of actually reading the lease to the tenants.
It was between an hour and an hour and a half, and we read through the entire lease together. We modified that a little bit now where we don't actually read it word for word. Although when I tell you I used to read it word for word, here's the value of that. By the way, I think there are too many property managers that don't even know what's in their own lease.
And I think that they have a general idea, but they wait for a default that something comes up and they're like, oh, and they go back and look at the lease. Now my team knows what's on that lease because not only do we review it, but particularly the resident relationship people, they need to know that lease so that they can talk it through with the tenants.
So for us what our orientation is, it's a couple of things. It is a review of the lease that we talk through more in layman's terms. We aren't reading all the legalese, but we're talking through every single section in that lease in layman's terms, helping them understand so that if there's any questions that we can address them then and help the tenant understand what it means.
Then we go through a little bit of a talk about, you know, what constitutes emergencies. And that usually comes up when we're in the maintenance section of the lease anyway. And so we're on a little squirrel trail to talk a little bit about just setting expectations and helping them understand, but also to give them some connection that we do care, right? That we're here to solve your problems.
We're not just here to take your rent money and then you're on your own from here. Sure, it doesn't work that way, but then we also help them with how to get their utilities set up to make sure all that's completed before they move in, to let them know if there's an HOA, or what the story is there, or how to get their pool passes or their mailboxes, all those sorts of things, and just talk through the stuff that's not in the lease.
All of that is helping us build a relationship with these people, which for us, it's called a resident relationship manager. It's somebody that's building this relationship with the residents. And what we find happens: there's two things. One, the residents tend to be a little bit less hair on fire. Not always, right? I mean, there's so many life stressors that come into play with this game.
But the second part is it increases our retention. I mean, really, people shouldn't be moving unless there's some major life event. They've got an expanding family, a new job transfer, maybe they get a big promotion that they're making considerably more money. And even then we're trying to transfer them into a little bit bigger product that we've got.
And if we've done our job right, that person is going to stay with us for a little longer period of time. And you know, turnover is the most expensive cost, as we've talked about. So if we can increase the tenancy even by just a year or six months or a year, 18 months, it's huge. It's a huge impact on the investors bottom line.
Andrew Smallwood
Yeah. Just a quick follow up question. That one hour, how many hours would you estimate that saves your team over the lifetime of that resident?
Justin Anderson
Countless. I mean, it is, because that's what it comes down to when you're in crisis management and that stuff is coming at you and you don't have time to do the proactive activities and head this stuff off one hour, invest it ahead.
I don't even know that I could put a measure to it. I mean, it's tens of hours in the first year and arguably hundreds of hours over the lifetime of the tenant. Yeah, it's a lot.
Andrew Smallwood
Yeah. That's great. And I think not a typical practice. A lot of people are just trying to get the lease done.
And here's your payment and portal, you know, here's your checklist.
Justin Anderson
Well, again, I think that's part of coming from my investor background, right? I mean, I'm an owner first, so I own a lot of property. And coming into this with that mindset and making sure that we're really taking care of this asset, it means we also really need to take care of the residents.
And I also, I’ve got to give credit to somebody in my office. She really pushed hard on some of this tenant advocacy stuff over the last three years, and really moving towards a mindset of, these aren't just the people that we have to tolerate in order to run our business, but that these are actually people that we're also providing a service to.
And, actually in agency law, we represent them. They're clients. They are also clients. And we're in a dual agency role here where they’re clients and our owners are clients. And how do we have a fair and balanced relationship here that we're not just always kicking that tenant down the road to the benefit of our other client?
I've heard a lot of people that were on this podcast say things like, residents are not second class citizens, right? And, I think there's some challenges here. Okay. We have a fiduciary responsibility. We do to the property owner and investor, and we don't have the same fiduciary responsibility. But there is an ethical, honest fairness.
And how can we treat people with dignity? You know, we're seeing that move in a positive direction, I think, in the industry of elevating how we treat residents.
Andrew Smallwood
With just some of the time we have left, I want to pivot because I think RentSmart, when I learned about this, that's just something that was interesting to me, was I haven't really seen this before.
Most people building a property management business, they come to the seminal point, in their business of making their first hire. And it's a big challenge of, do I make it at 20 doors or 40 doors, or do I try to make it to 80 or 100 before I do that? You know what, what revenue streams do I have in place?
How much profit per unit do I have before I make that decision? But, gosh, I've got to get some of this stuff off my plate so I can elevate what I'm doing and get higher ROI things done. And it seems like I was working with dozens of property managers to kind of solve that problem.
I'm curious if you could just speak about what was the problem that you saw? How did you kind of look at it and then ultimately kind of structure what you guys did?
Justin Anderson
You know, I still remember the moment. It's kind of interesting. I was sitting on the beach in Saint Lucia. I know, somebody has to do it.
I was thinking about scaling my business and what that looked like, and, you know, was I ready to just start doing massive marketing to be the biggest player in town and just working to get cold leads coming in that we could try and convert over? And that that model really never– it wasn't working for me. We didn't even try it because that concept for me was complicated.
It was a client that I wasn't going to have a relationship with preexisting. So the trust level wasn't there. So there's so much work that has to go into establishing the trust with that new cold client that I'm sitting there thinking about how we could grow the business. And it dawned on me that there are literally hundreds, maybe thousands of small brokerage firms that are running 50 or 70 doors that are in that spot you just described.
I was thankful I owned some properties, so I had a cash flow stream. So when I had to make that decision at 50 doors to hire somebody to come in and work inside my business, I could go without a paycheck for a period of time until we scaled to a place where I could start drafting a paycheck again.
But there are a lot of folks that maybe don't have that luxury. So they're pushing just a little longer, and they're waiting till they're at 70 doors or 100 and now they’re working 80 hours a week. But now they're in a space where they don't have any more time for business development, because they do not have the bandwidth to even take on another client yet. Then they have to hire somebody.
And who are they going to hire? I mean, we've talked about all these different roles; maintenance people and leasing people and resident relationship people and compliance people. And who do you hire? And it dawned on me that we have that platform built, that we're licensed in six states that we can come in as a fully licensed team and effectively partner with these small brokerage firms and run the back end of their operation to free them up to do what they do best, which is business development and client relationships.
And then instead of hiring one person, they're hiring a fully serviced, fully staffed, licensed, trained, managed team that is their team that has the ability to take care of that task work that's bogging them down from really growing revenue. And we have the ability to do it because of our scale at a much lower cost than the price of them just hiring one person on payroll.
Andrew Smallwood
And you mentioned a few states. Obviously, Georgia is one of them. What are the other states?
Justin Anderson
We're in Florida, Georgia, South Carolina, North Carolina, Tennessee and Alabama. So the Southeast corner there. Interestingly, I'm licensed in Oklahoma because that's where I actually got my first broker's license. But, we haven't expanded out into the Oklahoma market just yet, but we're open to it.
So I think it's an interesting approach, an interesting option for someone thinking about how I might build my business a little differently than just the way thousands of people have done this in the past, and the potential implications of that.
Andrew Smallwood
If somebody was looking for more information about that, where would be the best place to go?
Justin Anderson
Probably just go to our website. Rentsmart.net. And our phone numbers are on there. Feel free to reach out to me personally.
Andrew Smallwood
Just a last couple questions or rapid fire here.
If you could wave a magic wand and change one or two things about the property management industry today, what would be at the top of your list?
Justin Anderson
I think it has to do with something we've touched on a couple of times already. I think that there are an awful lot of, even when they're professionals, that are run in this kind of like a hobby.
And they are not advocating well for both the residents and owners and making decisions. They're exclusively chasing profit, and they're not actually building a solid, quality business. It's nice to see here at NARPM, I'm meeting so many folks that I think are pursuing that same vision. And so I'm so excited to be a part of this community.
But as I'm just out in the general market space, I just see so many people that are more concerned about their profit than they are about running a good business. And I think if you run a good business, the profit will follow.
Andrew Smallwood
So I'd love to have you follow up question off that. How so? How would you define a good business? Because obviously some people are saying, oh well, good business is one that makes profit, right? And that's their point of view. How would you think about it's a good business.
Justin Anderson
You know, I think a well-run business, you know, you're serving your clients or you're providing exceptional customer service to, again, clients, which is not just defined by our licensing agreements as just the owners. It's also the residents.
And I don't want to confuse people that I don't care about my clients. Now, you could call anyone on my roster of clients and you, quite frankly, you're trying to recruit them. And what we find out because of the relationships we built. But it it has to do with that customer service and then the quality of the product that we're putting out, you know, if a client comes to me and they're willing to have the type of product that represents me in my business, I'm just not willing to manage that product in order to make an extra dollar.
It's actually going to be more costly for my business if we're running a substandard product, because then I attract a substandard tenant and just everything that goes into that. So, you know, it's not just chasing volume, it's chasing quality and making sure that it meets your standards. So having a clear idea of what it is that your business is for you, and what that means and then not compromising on that, not just have a client come along that has 50 doors and they'll turn them all over to you.
I mean, yeah, you know, be careful what you ask for and make sure it's what matches your model.
Andrew Smallwood
Okay. Earlier you talked about Rich Dad, Poor Dad. Yeah. Is there another book that you would recommend, to professional property managers?
Justin Anderson
The E-Myth. Michael Gerber. Michael doesn't know, but he's my mentor. And, I mean, that book right there, I'll be honest with you, the first time I tried to pick it up and read it, I had trouble.
And I love to read, but I had trouble just actually reading it, so I bought that on—this will show a little bit of my age—it wasn't on digital, it was on a CD that I put in my truck. And as I was driving around, I would listen to that over and over till I burned up a whole set. Like the CDs wouldn't work anymore. I had to get another set and go through it, because the messages he has in that book are so valuable for a small business owner trying to build their business and have it be a well-run business, not just a self-employed operation where you're running around doing it, doing it, doing it, as Michael says, being the guy that is is better than everybody at everything they do.
You know, he's going to help you understand how to build a real, quality business where you empower people to be better than you at the jobs they do. That's going to move you from one Kiyosaki quadrant, probably to another for sure.
Andrew Smallwood
For sure. That's great. One more thing is, what do you think is the biggest challenge professional property managers are facing today in 2024?
Just Anderson
I think, you know, I'm trying to think of the direction I want to take this. I would say that again, we're moving now into a buying cycle again. So I've seen so many property managers that are just in a hurry to try and grow their businesses, and so they're willing to just take on anything and everything just to have more doors under management to solve a problem.
And the problem being a financial problem, right? That they aren't making enough money in their business. So they figure if they just take on more doors, I'm going to translate that back to investors. And my advice to investors when they get started is one deal at a time. Because the investor that– particularly as we move into this next phase of the market, it's going to be the same problem for property managers because they're going to see investors flooding into their markets, buying up this low end product.
And if it isn't working properly, more isn't going to solve that problem. And that's that applies in any business, particularly in the property management world. But you know, again, cycle back to an investor. You take an investor that buys one house, it's not working properly, and the solution is let’s buy another one. And the profits off that one will solve the problem over here.
And they go get that second deal and then that one's not working. Well, if I just get these three over here, they're going to make so much money. It's going to solve the problem of these first two. And business doesn't work that way. Get your house in order. Make sure that your house is working flawlessly so that when you take on that next deal, that it also can work flawlessly.
And that for me is going back to that well-run business. And I think there's going to be this challenge in this next market phase, particularly as we come out of a buyer’s one into the bottom in a buyer's phase two, when we are truly at the bottom of the market and investors are flooding out of the woodwork, there's going to be an opportunity for property managers to take on a lot more inventory, and if it doesn't match what you do best, it could disrupt your business.
Andrew Smallwood
Yeah, the distraction of opportunities of that nature. So last question, as you look to the future, what gets you most optimistic or most excited about what you see for the professional property management industry?
Justin Anderson
I think that again, we're moving into that buying cycle. So as we come through the bottom of this market, you have an opportunity to cultivate your clients and help them really, truly make some incredible wealth.
As we go through this next phase. Because our money in this business as investors is not made when we sell the asset, it's made when we buy the asset. If you buy it right, then the hard work is over. And as the market expands and takes off, the wealth is there. Well, there's going to be this great opportunity for property managers to guide their clients into solid assets where there's folks that are motivated or just are needing help to get out of an asset that we can reposition our clients into and help them make money.
The bigger thing for me is if you don't already own investment properties, you need to buy them. And I don't mean lots of them. One at a time, one deal at a time. Buy one, get it working right. You're already in the management business. As we talked about, you're doing the hardest part of this game anyway.
You should own them and be very selective about what you buy and add one. And the most interesting thing is over the last 20 years that I've been, you know, teaching to investors and helping investors, I always get the question about, you know, what do I do when this happens? What do I do when that happens? They're all worried about, how do I buy my 10th deal? Because, you know, I can only have ten conventional mortgages.
And my response is, I've never, ever met anybody in all my years of doing this that bought their second house before they bought their first one. So you should focus on getting that first one, and then we'll worry about what happens on deal number ten after you have nine.
And I think the same thing applies. Let's go ahead and get one, and add it to your portfolio and lead by example because your clients are watching. They're watching what you do and they will follow your lead. If you are out there buying the types of assets you want to represent, go buy one and your clients will see that and they will follow that lead.
Andrew Smallwood
I think that's a great place to stop. Thanks so much.
Justin Anderson
Thank you for having me. I appreciate it a lot.
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